EU Nations to Draft Compromises on Banker Pay, Capital Rules

By Jim Brunsden -
Feb 12, 2013

European Union nations will seek
compromises on bank bonus curbs and capital surcharges in a bid
to advance talks on applying Basel rules to the bloc’s lenders.

Ireland, which holds the rotating EU presidency, will
confer with national diplomats on the tougher banking standards
at a Thursday meeting, ahead of negotiations with EU lawmakers.
Officials were split on a proposal at a meeting yesterday that
would have allowed bankers to obtain bonuses of as much as five
times fixed pay, as long as part of the awards were based on
shares or bonds that could be written down in a crisis,
according to two people familiar with the talks.

“We’re in the final stretch” of talks on the draft law,
Michael Noonan, Ireland’s finance minister, told reporters today
in Brussels. “The final compromise is in sight.”

The EU has struggled to agree on legislation to apply the
Basel rules, which were published in 2010 as part of efforts to
prevent any repeat of the financial crisis that followed the
collapse of Lehman Brothers Holdings Inc. National governments
and the EU Parliament have clashed on bonuses, liquidity
requirements, and how much freedom national regulators should
have to impose tougher capital measures on lenders.

Talks on the law have reached a “decisive phase,” Othmar Karas, the legislator in charge of the EU parliament’s work on
the rules, told reporters today.

Sticking Point

A final deal is possible at the next negotiation meeting
between Ireland and the parliament on Feb. 19, Karas said.
Governments have sought to revisit a tentative compromise
reached in December by lawmakers and Cyprus, then holder of the
EU presidency, to ban bonuses more than double fixed salaries.

EU officials yesterday discussed an Irish proposal on the
pay rules, according to the two people familiar with the plans,
who asked not to be named because the talks aren’t public.

The proposals, obtained by Bloomberg News, would allow
larger bonuses as long as they are at least partly comprised of
shares in the bank, or in the bank’s own debt.

The debt would be in the firing line for writedowns, or
conversion into equity, if the lender gets into financial
difficulties, according to the document. This could be done
through so-called contingent-convertible, or CoCo, bonds.

Other conditions relating to deferral, shareholder
approval, and the bank’s track record in raising capital, would
also apply before the higher bonuses could be awarded, according
to the document.

There was no agreement on the plans at yesterday’s meeting,
according to the people.